What is the distribution edge, and why is it central to the future of our electricity system?

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What is the distribution edge, and why is it central to the future of our electricity system?

December 26, 2012

People tend to think of the electricity system as “out there on the grid”—the power plants, wires, and infrastructure that have been built over the last 150 years. But when we look forward, many of the most important changes in the electricity system will take place locally, close to the point of use in our buildings and communities.

It’s this part of the system that’s being changed most fundamentally by the digitization of the economy and by other social, economic, and regulatory forces. We call this the "distribution edge"—the interface between the electric utility’s distribution grid and the rapidly growing portfolio of energy assets, control systems, and end-use technologies that are available to customers. The distribution edge is a microcosm where the fundamental forces changing the economy at large are having their greatest impact in the electricity sector—forces such as the rapidly evolving “Internet of things” and intensifying concerns about environmental and cyber security risks.

A wave of cheaper and better performing distributed technologies, ranging from super-efficient LED lighting to bargain-priced solar PV systems, is bringing new opportunities and challenges for utilities, customers, and other stakeholders.

Control the timing and the amount of their electricity use in response to signals received from their utility, and

Manage a portfolio of on-site resources—potentially including an electric vehicle, distributed generation, storage, and demand response—to optimize around goals such as cost or environmental impact.

The increasing role of distributed resources in the electricity system is leading to a shift in the fundamental business model paradigm of the industry, from a traditional “value chain” to a highly participatory network or constellation of interconnected business models at the distribution edge. In this context, regulators and policymakers are studying ways to redesign the traditional utility business model to facilitate the economic and operational integration of distributed resources while at the same time ensuring the health and resilience of the grid.

One possible way forward is for the electric distribution utility to provide a platform for the integration of these diverse distributed resources. By platform we mean a system that supports value-based interactions among multiple parties and provides a set of rules—including protocols, rights, and pricing terms—that standardizes and facilitates transactions among them. The New York Stock Exchange is a platform, as are Apple’s iTunes and App stores.

A platform can increase innovation and competition by both reducing transaction costs and increasing transparency in relating or comparing the value of services provided by different types of assets, even where the underlying assets are very different in character.

Perhaps most powerfully, a platform can enable and empower the creation of integrated solutions that are built up from readily combined but heterogeneous modules. A stock portfolio, an iTunes playlist, a portfolio of assets to meet electricity capacity needs or voltage requirements—all are integrated solutions that can be enabled by the right underlying commercial structures. But creating such structures at the distribution edge is dauntingly complex and will require far-reaching changes in existing systems and business models.

RMI’s Electricity Innovation Lab, or eLab, provides a framework for key stakeholders across the electricity system to work together to explore possible solutions to the challenges emerging for the companies and customers doing business at the distribution edge, including:

How can we understand and effectively communicate the costs and benefits of distributed resources?

How can we harmonize business models of utilities and distributed resource developers?

How can we facilitate the economic deployment of distributed energy resources for greatest overall benefit?

eLab is creating a setting for diverse stakeholders to interact outside the adversarial regulatory environment and look beyond their immediate business challenges, incubating a steady flow of ideas to be applied in real-world pilot projects to demonstrate what can be achieved.